ICT Mentorship Core Content - Month 06 - Ideal Swings Conditions For Any Market

Welcome back, folks. This is February 2017, Lesson One: Swing Trading.

This teaching is going to be specifically dealing with the ideal swing trading conditions for any market.

Okay, what is swing trading? It's going to be the discipline of trading predictable price movements in the market with a high degree of consistency. We'll be buying when it's in bullish conditions in the marketplace, selling short in bearish conditions in the marketplace, and swing trading is a form of intermediate-term trading with trade durations of two weeks or longer in time.

Okay, what is the goal of swing trading? I'm going to be capitalizing on the effects of larger entities moving into a market and causing a significant displacement in price. And since trade durations can be two weeks or longer, potential rewards are considerable, and trade objectives of 200 to 500 pips in magnitude are possible rewards for such setups.

Every market isn't ideal for setups for swing trading. Now you want to avoid, for swing trading specifically, you want to be avoiding favorite markets in general for swing trading purposes. Larger moves every year rotate in and out of different marketplaces. There is no standard swing trading market or pair. Every three months, there is a new opportunity formed for swing trading. What once was a big mover will not always be the next big mover this time. You have to investigate, look deeper behind what has most recently happened.

Now, market profiles matter. Markets move from one profile to the next in all time frames, in monthly and weekly charts. Look for the current market profile for your markets of study. Avoid lackluster or lethargic markets that have little to no movement over the last three months.

Now, market profiles are consolidations where it's range-bound, then there's trending market profiles, then there's reversal market profiles. Now, inside of the middle one here, trending, this is going to be seen as expansion and retracement. We're going to talk more about that in the next slide.

Trending markets equal large flows. If the aim in swing trading is to position ourselves in moves that are likely to move a large distance, we should be looking for markets that are trending. If a market is confined to an obvious trading range, this does not indicate it has high odds for a directional setup. Building your watch list of markets that are trending or having market profiles that are trending on the monthly and/or weekly puts high probability behind your setups.

When we're looking at monthly charts and weekly charts, you're looking for price action to indicate that it's not confined in a small little range. In other words, it's moved away from a consolidation area already. Once it's left the consolidation area, chances are we're going to be in a trending environment, and it will most likely move to a larger level or PDA on the higher timeframe, monthly and/or weekly.

Having an understanding that large flows or big participation by smart money, that is what pushes these marketplaces on these higher time frames in one direction or the other. That is equated in terms of large flows.

Trading markets on higher time frame charts are indicative of major players buying or selling that particular asset. You want to be looking at markets that are trending because that is the telltale sign that there are participants in the marketplace on an institutional basis that are pushing price in that higher timeframe chart. Trending markets, again, that's the profile that you're looking to participate in.

Since the monthly and weekly charts are so long-term, and we're active actually taking trades on a four-hour basis, we're going to look for the setups on monthly and weekly and daily, but we'll execute on four-hour charts. So if we're looking for moves on a four-hour basis for entry, monthly and/or weekly chart, we have the great deal of probability behind us that the market's going to move in a trending fashion for our trade.

Now, when we're looking at currencies, we can go through the marketplace on a monthly and weekly basis and quickly ascertain whether or not what markets are trending higher, which markets are trending lower, and which markets are trending in a consolidation or holding pattern. Markets that are in large trading ranges, you want to avoid that because it's there for a reason. If the market's confined to a small consolidation or range-bound environment, it's showing an indication of a lack of institutional interest.

So, if the market can't move out of that consolidation higher, then there's evidence of a lack of buying. If it can't break out of the consolidation to the lower end, it's a lack of selling, so it's going to stay in a state of neutrality. It can't go higher, it can't go lower, so therefore it's going to stay in a range. That's not what you're looking for for swing trades. For the highest probable setups, when you have markets that are trending higher or lower on the monthly and weekly charts, or they have already left an area of consolidation, that is indicative of big players having muscled the marketplace out of that holding pattern or that trading range or consolidation market profile. By having that on our monthly and/or weekly chart, when we move down to a daily and/or four-hour chart, it will help you find setups that have a great deal of energy behind them, so you're getting involved in a marketplace that's about to take off and move a great deal of distance on these higher time monthly and/or weekly charts.

Be willing to err on the direction. Avoid the temptation to pick market tops and bottoms in price action. It's far more likely to see the existing long-term trending market profile influence price action over a long-term reversal. Focus on the long-term trend, and the market tide will carry your trade to the winner's circle more often than not. When we look at charts on these higher timelines, monthly and weekly basis, we're focusing on what's the largest, most strongest, directional play there is, because if they're seeing it clearly on a monthly chart, then it's probably going to move another month at least, okay? And since we're looking for at least two weeks duration on our trade, the probabilities are in our favor that we're probably going to get another continuation of that same previous month's direction, higher or lower. And again, it's on markets that have already shown a willingness to move outside of a consolidation. By having our focus on these long-term trends, it removes the necessity of figuring out what side of the marketplace you want to be on. If the marketplace for monthly and weekly suggests that you should be a buyer, then obviously we should be focusing on being a swing trader on the long side. Now, what that does for you is sometimes it's going to create arguments internally. You're going to see the marketplace and assume, for whatever reason, that there's some evidence that you should not be a buyer, and you're going to resist taking the buy opportunities. You want to avoid doing that because if you see the movement on the monthly and weekly charts indicating that it wants to go higher, and you get a buy signal on a daily and/or a four-hour chart, you want to take that signal. If it happens to fail, that's okay, because you've already adopted the mindset that you're willing to be wrong. But you're going to be wrong with a great deal of evidence behind you that you may still be in the right direction if you take another buy. But what happens if you take a buy signal when the monthly and weekly are suggesting it's going higher? Say you take a buy signal on a daily or four-hour setup, and it stops you out and it's a loss. Then you take the next signal and it's a buying opportunity and it fails. What it's telling us is it's probably near a longer-term or intermediate-term shift in the marketplace, and that present bullishness may be waning or that trend may be tired. So it will give you insight immediately, it'll give you feedback, but it also is a reminder that you should not be fearing taking losses because you're going to have them anyway. But it makes much more sense to be trading on a higher timeframe monthly and weekly basis in that directional bias. So if we have our trades focused there, many times you're going to see if you study the moves that take place with a great deal of magnitude, are going to be in the same direction that monthly weekly charts indicating anyway. So it makes better sense for us as traders to be willing to be wrong buying in long-term trends that are higher or being short in long-term bearish moves on monthly and weekly and being stopped out on our short positions. It's far more likely that you're going to be profitable and have the move work out in your favor than it is against you. And I know it's a difficult thing for some of you to do, but you have to stick to a mindset, and it starts with a higher timeframe monthly and weekly chart because if we can do this, we will remove all the ambiguity about what it is that you should be looking for. And this is how it starts. You start with a monthly and weekly basis, and you work down top-down. Now, just simply because the market's most likely to move higher or lower in the chart doesn't indicate that there's a setup. There's other things we have to look for. We're looking at the euro-dollar monthly chart, and I want you to take a look at this chart. And you can see there's several different market profiles here, but we're going to focus on the last section of price action from around the end of February 2015.

And we'll just use the March 1st, 2015, since it's delineation in time on the bottom of the chart, until present time now. Let's just highlight that now. This little section in here, if I was to ask you what would you call that market profile in this condition right here, this would clearly be a consolidation market profile. The market's showing an unwillingness to go higher and an unwillingness to go lower; it's stuck in a range. So, if it's indicating this on the monthly chart, is this a high probability market to trade for buys and sells? Not that it would be indicated on a monthly chart now. So let's take a look at what's going on in the weekly.

Okay, here's the weekly chart, and again, here's that same consolidation. Now one would be quick to be saying, "Oh well, you know, I can see there's several hundred pips, there's still probable market direction in here," and that would be true. The problem is, it's not having a great ease of moving outside of that range; it's staying in a tight consolidated range. Now, you can trade this type of pattern back and forth inside the range; you can do that absolutely. But when we're swing trading, the best scenarios are to focus on markets that do not have this telltale hallmark. You want to be looking for a trending environment, a market that is able to move on a monthly and weekly basis because that is indicative of huge large flows moving into that particular asset.

Let's take a look at the Kiwi versus the Dollar. Okay, look at this market action in here. Anything significantly different about that versus what we saw in the Euro? Obviously, we have a market that's trying to go higher. It has higher lows, it has higher highs, it's moving back up, it's closed in a liquidity void up to the 7490 level, so it's showing a willingness to go higher on a monthly basis. So, is this a consolidation or is this a trending or a reversal? It's a trending environment for the monthly chart. It keeps making higher highs and higher lows.

Now, let's take a look at that same pair on a weekly basis. Here's that same section of price action. You can see its successive higher high and higher low. In this environment, the market is indicating on a higher time frame, monthly weekly basis, there are buyers willing to buy this particular pair.

Let's take a look at another pair. This is the Dollar versus the Japanese Yen, this is the monthly chart. Okay, you can see here's a small little section of price action. Price was staying inside of a consolidation and then it left the consolidation abruptly. Here's that same consolidation here on a weekly time frame and you can see it moves several hundred pips higher. Now again, it's showing the willingness to leave the consolidation, that is very strong for looking for swing trades. In this case, you'd be looking for swing trades on the long side.

Let's go back to the Kiwi Dollar weekly chart and we're going to focus in on this little area right here. Okay, so we've already outlined the fact that the Euro Dollar was in a long-term consolidation that's not indicative of a swing trading market, but we do have one here with the New Zealand versus the Dollar index. Now the weekly was indicating that the price for New Zealand versus Dollar was bullish; it kept making higher highs, making higher lows, so it's having a willingness to go higher on a monthly chart, so it just kept pressing higher, higher and higher.

So, this is a good pair that we can go into further study. So, we're going to go into this chart and break it down in the form of vertical lines, delineating each line represents a new month. Now, if you look at the bottom of the chart, you'll see these little orange segments; that's the next month out, and then it goes another little white square, then it's an orange square, white square, orange square. What this is showing is, or basically all I'm delineating is the first white square represents the first month, then the orange square represents the second month, the next white square represents the third month. So, I'm showing you a pattern, if you will, of what prices has done over the course of three-month intervals.

So, what we're looking for is a buying opportunity. Okay, and you can see how price offered that just about every three to four months. So, every orange area we saw some measure of retracement, and then there was a buying opportunity very next month or inside of the next month. So, every alternating three months or so there was a new buying opportunity and price kept pressing higher and higher.

Now, here's a daily chart, we're going to zoom in a little bit here and take a closer look, and I'm also going to give you a little bit of a homework assignment. We're actually going to go into this teaching on Tuesday's live session of the coming week for the mentorship. So, I'm actually going to give you this homework, and we're going to actually review it as a live session on Tuesday morning.

But we have that same area of price segmented in monthly intervals. So, every vertical line delineates a new month, and you see a rally up, then there's a consolidation or retracement, and comes back and gives you another buying opportunity. Okay, I'm just going to pull up the first one that's obvious. You can see here price comes back, retraces, gives a buying opportunity. I want you to study each one of these, and we're going to review this in Tuesday's live session coming up this coming week.

There's a buying opportunity in here where price rallied away, price rallied here, it rallied here, and rallied at this point, and gave them a buying opportunity there, and gave a buying opportunity at that low and at that low as well. Now, what I want to ask you is, looking at this in terms of how much price has moved, these are swing trades, that means the duration you're holding is for about two weeks or longer.

By having this viewpoint on price, how long you're holding the trade and direction you're focusing on, it gives you an idea where you're looking for the trades and what you're looking for. A buying opportunity, the price has to come back to a level of what discount. Okay, so if we get a level of discount and price goes back to a PDA, if we look at price in terms of the range, if we look at where cell stops are, all those things, I want you to use those ideas, okay? And his PD arrays at each one of these reference points here, okay? And we're actually going to go through every single one of these on Tuesday's live session coming up for this week.

But for now, I want you to think in terms of how many opportunities were presented in this pair on a swing trader's perspective, and how many opportunities that were made available in terms of several hundred pip moves. So, we didn't see little tiny little moves, we saw several hundred pips of movement from these lows. Some of them actually are a little bit longer term in the formation, so they would have been wonderful ideal scenarios to get in sync with a long-term or positioned trader's mindset. We just closed January's content for long-term position trading. There are opportunities in here where long-term position trading can be employed. I want you to think about that as well, try to classify why certain lows would have been good for those ideas as well.

When we look at swing trading, we're looking at high probability directional trades. That's what we're looking for. We're not looking for range-bound trading; we're not looking for turtle soups to stay inside of a consolidation. We're looking for strong directional plays. Swing trading model that I employ is highly linked to directional mindset. So, if I'm looking at a monthly weekly chart and it's indicating that it wants to go higher on those two time frames, I'm going to be looking to be a buyer and I'm going to be using all my tools to get in sync with that buyer's mentality.

If I'm bearish on monthly and weekly charts, I'm going to be looking for all my tools and lineup and give me some sell scenario. Now the next lesson we go into, we're actually going to give a little more framework about what it is that we look for to build these ideas, not just look at one thing weekly charts, but bring a little bit more definition to what it is that we do for swing trading.